The number of new lenders’ mortgage insurance premiums has contracted for three consecutive years as risk appetites shrink amid tightened lending standards.

Demand for mortgage insurance should remain subdued this year, according to an S&P Global Ratings report.

The ratings agency warns product risk remains high as prudential lending caps and tighter underwriting standards lead to soft demand in the housing market and, consequently, mortgage insurance. Declining prices, slow wage growth, high debt and a potential interest rate increase may exacerbate credit losses.

The industry carries an intermediate risk, thanks to barriers to entry, profitability and a strong institutional framework, S&P says.

It notes Australia provides a stable environment for mortgage insurers, limiting the effect of significant downturns or domestic external shocks.